Jul 6, 2010
The HST and homebuyers
Jul 6, 2010
The HST and homebuyers
For homebuyers and sellers, the impact could be significant, though the jury’s out on whether the net effect of HST will be positive, negative, or more or less neutral. Here are 10 ways the HST will affect homebuyers, sellers and everyone else after Canada Day.
1 Few Canadians welcome any new tax with unbridled enthusiasm, but for the most part, it appears that the HST will have less general impact than most people fear. Some items that were exempt from retail taxes before, such as groceries and prescription drugs, will remain exempt; and the majority of everyday items that were subject to both GST and PST before will experience no change, either. And a third class of products, that were subject to GST but not provincial taxes, such as books, kids’ clothing and so on, will remain exempt from provincial taxes. But a whole raft of items that used to be GST-only will take on a significant tax increase once HST comes into effect, and this is the most controversial aspect of the new tax: gasoline, haircuts, magazine subscriptions, and many other everyday products and services.
2 While neither provincial government will admit that the HST amounts to a rise in taxes, the Ontario government has started sending out rebate cheques of up to $1000, in three installments, to offset the effects of the new taxes on families, combined with tax credits and income tax cuts. British Columbia has opted to tie its rebates more closely to income, with refundable tax credits combined with GST and carbon-offset tax rebates.
3 The government claims that, like the GST, all sorts of hidden taxes on products are embedded in the final price to consumers, and updating the tax collection system will ultimately lead to more competitive pricing on locally manufactured goods and therefore an increase in jobs and reduction in wholesale prices. For homebuyers and sellers, it could mean a reduction in the overall price of some building materials, and other goods manufactured in Ontario and British Columbia.4 Lawyer’s fees, which were only subject to GST before, will now be subject to the full HST. Incidental and disbursement costs (faxes, postage, etc.) were subject to both provincial and federal taxes before, and therefore will not change.
5 The biggest bite for home sellers is probably that real estate commissions will be subject to HST instead of just GST as before. That means on a $30,000 real estate commission on a $600,000 resale home in Ottawa, that’s an extra $2,400 you didn’t have to pay on June 30.
6 However, not all fees associated with a house sale will change: resale (existing) houses and most banking and mortgage fees will remain tax-exempt, as before.
7 In both provinces, new homes are eligible for rebates of a portion of the provincial part of the new tax, depending on their purchase price. In Ontario, new homes with a price of less than $400,000 will be eligible for a rebate of 75%, up to a maximum of $24,000. New homes costing over $400,000 are also eligible, provided the home will be used as the purchaser’s primary residence.8 In British Columbia, the rebate on new homes is slightly more complex. The threshold is $525,000; new homes costing less than this may receive a rebate of 71.43% of the provincial portion of the HST, while homes over that price may apply for a flat $26,250 rebate.
9 If the transaction occurred before July 1 but you take possession after that date, your purchase is subject to what’s called a grandfathering clause. In effect, it’s no different from the tax under the GST system: the home is subject to the federal component of the HST (i.e. 5%), but not the provincial portion. These homes are not eligible for the tax rebate.
10 Once you take possession of your home—whether new or resale—many of the other costs associated with buying and moving into a new home will increase: designers, painters, contractors, moving companies, and many other service providers will now be charging HST. However, furnishings, paint, lamps, new appliances, and anything else you buy at retail will cost pretty much the same—with the exception of goods made in Ontario or B.C., since their wholesale (and therefore final) prices may go down with the removal of taxes incurred during their manufacture.
At least in its first few months, it’s possible that the greatest significance of the HST may be psychological, a factor that can often have a strong influence on real estate markets. What kind of impact it will have on the real estate markets of British Columbia and Ontario—two of the hottest markets in the country—is anyone’s guess.